Should KBC customers consider fixing?

gnf_ireland

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Looking at those rates - I wonder would the 5 year fixed at 3% be attractive to some people, especially those looking for repayment stability !
 
Looking at those rates - I wonder would the 5 year fixed at 3% be attractive to some people, especially those looking for repayment stability !

Funny, I was thinking that the 1-year fixed rate @ 2.9% looked relatively attractive, particularly at higher LTVs.

It's great to see a lender offering a rate below 3% at long last.
 
The three year fix for <90% is 3.45% , compared to 3.5% for their variable rate.
The three year fix for <80% is 3% compared to 3.1% for their variable rate.

These variable rates are only "cheap" in comparison to the other Irish rates. They are still around 1.5% ahead of the Eurozone rates.

I full expect the rates to fall further towards the Eurozone average.

No one should fix for three years in any lender at the moment.

So should you fix for one year at 2.9% for LTV <90% compared to a variable rate of 3.5%.

This is a hard one. Personally I think you should try to switch to EBS and collect 2% in the process.

Brendan
 
So should you fix for one year at 2.9% for LTV <90% compared to a variable rate of 3.5%.

This is a hard one. Personally I think you should try to switch to EBS and collect 2% in the process.

Would EBS refi a loan with an LTV over 80%?

I'm inclined to agree with you re the 3-year fix but the 5-year fix @ 3% might well be attractive to a borrower that strongly favours repayment certainty. Who knows where interest rates will be 5 years from now?
 
Who knows where interest rates will be 5 years from now?

No one. But it is likely that Irish variable and fixed rates will fall in the next year or two. When fixed rates are down to fair levels, it might then be advisable to fix.

Would EBS refi a loan with an LTV over 80%?

I don't know, but I think that they should. They all want to lend 90% LTVs and switches are not subject to Central Bank restrictions.

Brendan
 
No one. But it is likely that Irish variable and fixed rates will fall in the next year or two. When fixed rates are down to fair levels, it might then be advisable to fix.

Agree with you on this, but obviously there are people who like an element of certainty. While I would not fix for 5 years personally, I do think it would be attractive to some. Its been a tough journey to get the rates down to the current level - who knows if/when they will drop again without a new entrant in the market to shake things up

Agree that the <90% 1 year 2.9% should be attractive to some, especially if they are unlikely to get below 80% LTV in the 12 month period
 
But it is likely that Irish variable and fixed rates will fall in the next year or two.

You may well be proved right but I wouldn't share your confidence that it is likely that rates will fall far enough and quickly enough to justify your position.

They certainly haven't fallen to that extent over the last couple of years and there is always the possibility that rates could actually rise over the coming years.

I certainly don't think that average new lending rates in Ireland will converge with average Eurozone rates in anything like the near future given our horrendous default rates.

I don't know, but I think that they should. They all want to lend 90% LTVs and switches are not subject to Central Bank restrictions.

EBS's variable rate is 3.7% at that LTV and switching costs will eat a large element of the 2% cash back incentive for an average loan balance.

Is that more attractive than a 1-year fix at 2.9%?
 
The 2.9 1 year fixed rate is great value in my opinion. for sure variable rates will drop again but not for at least another 5/6 months and maybe by 10-30 points. I have a question though what rate do you go on after the 1 period is up. is it current variable rate or present rate now?
 
I have a question though what rate do you go on after the 1 period is up. is it current variable rate or present rate now?

Excellent question. And this is one of the reasons I just don't like fixed rates. They often have implications which one doesn't think of. This is what KBC says on their website. I presume that they have changed their policies as a result of yesterday's announcement, but I just would not trust them unless it is spelled out clearly on their website and in a personalised letter or contract.

https://www.kbc.ie/Help/Mortgage-Support
upload_2016-10-27_7-52-14.png


So you could fix for a year and then end up on their SVR.

Brendan
 
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I wouldn't share your confidence that it is likely that rates will fall far enough and quickly enough to justify your position.

My position is that whether or not to fix for one year is a very difficult decision. On balance, I wouldn't, but it would not be far wrong to fix.

I think it is more likely to be wrong to fix for three years. I expect rates to fall. For example, in 18 months' time, it might be possible to fix for 10 years at 2.5%. After three years, the ECB rate may have risen and long term fixed rates may well be much more expensive.

Generally, in any sort of financial planning, flexibility is very valuable. Tying yourself to a particular lender and deal for three years just seems wrong, unless that deal is inherently good value, which in this case it certainly is not.

Brendan
 
EBS's variable rate is 3.7% at that LTV and switching costs will eat a large element of the 2% cash back incentive for an average loan balance.

Is that more attractive than a 1-year fix at 2.9%?

It's getting complicated.

Let's take a €200k loan.

I can fix for a year and pay 2.9%, so I will pay €5,800

If I switch to EBS,

Interest: €200k @3.5% = €7,000 (If I fix for a year)
Add legal fees: €1,000
Less cash back: (€4,000)
Total cost: €4,000

So that would be, just about, worthwhile. But you would have to switch again after a year, and lenders may no longer be offering switching incentives.

KBC will probably have lower rates than EBS after a year, but it's hard to know. (If their current policy of rolling over onto the SVR persists, then it would not be a good move.) My expectation is that cash-backs will be gone/banned by then and EBS will again be competing on rates.




Brendan
 
Thank you Brendan for all your efforts with the FMRC.

Re EBS, do they pass on any rate reductions to existing customers?

Edit - Considering this from the scenario whereby you qualify for and take out a mortgage with EBS today, but if/when you subsequently look to switch to a lower rate elsewhere your personal circumstances have changed such that UB, KBC or whoever won't offer you a mortgage, hence your stuck with EBS.
 
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Re EBS, do they pass on any rate reductions to existing customers?

Up to now they have done so. But when AIB last cut rates, EBS did not cut their rates for new or existing customers. They compete by offering the 2% cash back.

So, as I say, it's hard to know which will be cheaper after a year.

Brendan
 
What would people advise in this situation.
On a rate of 3.35% on a 75% ltv with kbc, this could be reduced to 3.1% from December 1st under the new offer.
I'm tempted to switch to EBS to avail of the 2% cash back for switchers. That would leave me on a rate of 3.5%.
Would a difference of .4% out weigh a cash back of approx 5,000 after switching fees?

I'd imagine ebs will reduce their rates in the coming year or so, or I could switch back to kbc in a year.

What are people's thoughts? Thanks
 
Excellent question. And this is one of the reasons I just don't like fixed rates. They often have implications which one doesn't think of. This is what KBC says on their website. I presume that they have changed their policies as a result of yesterday's announcement, but I just would not trust them unless it is spelled out clearly on their website and in a personalised letter or contract.

These are the KBC roll-off rates per their website (although I think they need to be updated following yesterday's announcement:-

New Residential Primary Home - Roll Off Rates
Roll Off Rate Interest Rate APRC
<50% LTV 3.30% 3.37%
50-60% LTV 3.35% 3.42%
60-80% LTV 3.40% 3.47%
80-90% LTV 3.85% 3.94%

*At the end of your fixed rate period you will roll off on to a new business LTV variable roll off interest rate, as illustrated above. The applicable roll off rate is determined by Loan to Value at initial drawdown.

In their press release yesterday, KBC gave the following example:

"An existing customer with a €250,000 mortgage balance on a standard variable rate at 4.25% and 20 years remaining and an LTV between 80% and 90% can save €98.19 per month and €23,565 over the term by availing of the reduced LTV variable rate of 3.50%.

A similar customer above could also increase their savings in year 1 to €174.01 per month and €25,261 over the term by availing of the 1 year fixed rate of 2.90% (rolling to 3.50% on conclusion of fixed term)."

Regardless of what it says on their website, I would certainly double-check that the appropriate roll-off rate is reflected in the actual documentation.
 
A similar customer above could also increase their savings in year 1 to €174.01 per month and €25,261 over the term by availing of the 1 year fixed rate of 2.90% (rolling to 3.50% on conclusion of fixed term)."

That would be clear enough for me, and more importantly for the FSO.

The roll off rates you quote, seem to be for new customers. According to my reading of their website, existing customers who fix, roll off onto the SVR as per my post above:

upload_2016-10-27_11-15-14.png


Brendan
 
If I switch to EBS,

Interest: €200k @3.5% = €7,000 (If I fix for a year)
Add legal fees: €1,000
Less cash back: (€4,000)
Total cost: €4,000

So that would be, just about, worthwhile. But you would have to switch again after a year, and lenders may no longer be offering switching incentives.

Switching costs are likely to be closer to €1,600 (when you include valuation costs, outlay and VAT) so the advantage of switching to EBS in year 1 is even more marginal than your example suggests. The KBC 1-year fix actually comes out ahead of switching to EBS in year 1 for loan balances below around €110k.

More importantly, it takes a lot longer to switch lenders than to fix with an existing lender and a borrower would continue to pay the higher variable rate during that interim period. I guess a borrower should also ascribe a value to their own time (and sanity!).

I don't mean to suggest that I think the KBC 1-year fix is a fantastic deal. But I do think it represents relative value for some borrowers.

That would be clear enough for me, and more importantly for the FSO.

I would still want to see it explicitly written into the terms of the fix - no point in leaving any ambiguity about the applicable roll-off rate when it can be clarified upfront.
 
Would a difference of .4% out weigh a cash back of approx 5,000 after switching fees?

Assuming the rate differential remains constant (and remember that EBS are going to have to make back the 2% cashback somehow), the lower rate starts to come out ahead after just over 4 years with a starting loan balance of €300k.

I'd stick with the lower rate if I was in your shoes. Your personal circumstances might change in the future and you might not be in a position to switch away from EBS.
 
Generally, in any sort of financial planning, flexibility is very valuable. Tying yourself to a particular lender and deal for three years just seems wrong, unless that deal is inherently good value, which in this case it certainly is not.

I certainly agree that maintaining a degree of flexibility is an important element of financial planning. But, conversely, so is having a degree of certainty regarding your future outgoings. Where to strike the appropriate balance between the two really depends on an individual's circumstances.

The best value 5-year fixes in the UK at the moment, for LTVs below 60%, are hovering at around 2% and they invariably come with an arrangement fee of ~£1,000. So a 5-year fix @3% plus €2,000 cashback is starting to look something like reasonable value to me when you consider Irish default rates.

I'm not particularly advocating that anybody should take a fix. I'm simply saying that for those that value repayment certainty, a 5-year fix @ 3% plus €2,000 cashback starts to look interesting.
 
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